Thursday, November 8, 2012

T-Mobile released their Q3 2012 numbers along with commentary through the Deutsche Telekom parent. Some of my thoughts ahead of this release were substantiated and some were not. The US unit earnings slide touches on four areas, two financial and two operational performance metrics. From a broad view, the financial indicators are on a downward trend. Service revenue, earnings revenue and margin are all down. Let's dissect the two important operational areas - net additions and ARPU.

Net Additions: Though there were 160K net additions, the glass half empty side looks at the postpaid losses. With nearly 500K of postpaid subscriber losses, it's alarming. The company blames the iPhone 5 as a key element for the decline. So where are these people going? AT&T had record iPhone 5 activations and Sprint's iPhone 5 with an unlimited data proposition are the likely culprits. How does the company reverse its postpaid slide? Q3 2012 represents the ninth quarterof postpaid losses. Its shift to promoting Value plans as part of the greater postpaid strategy may help its margins and lower device subsidy costs but really, is it working? To deflect this, DT Chairman Rene Obermann cited that there are now 1.5 million iPhones running on the T-Mobile USA network. The last iPhone count was 1 million back in June 2011. Pushing the glass half full view, the prepaid and wholesale business is contributing to the company's growth. While wholesale should be positive across the industry, the MVNO business is a consistent performer that makes up almost 12% of the customer base. The machine-to-machine side represents about 9% of the company. These two areas should be all accounts continue to add to the customer count throughout the quarters. The prepaid additions are on a very good positive slope, beating previous quarter additions handily. The introduction of the Monthly4G plans that offer alternatives to Boost, MetroPCS and Leap plans. Going into Q4 and with the company increasing its customer acquisition spend, can T-Mobile sustain a 300K+ net addition run?

ARPU: One take away on the postpaid ARPU is that it's going down. While the chart shows data ARPU increasing, the subscriber base was traditionally more voice centric. Minutes of use came in at 899 compared to 986 a year earlier. This follows the industry trend. The quandary for the company is that it will continue to see a decline in overall ARPU as it pushes its value plans. That may be OK if the business case shows that margins are better in the long run. On prepaid ARPU, the $21 mark was flat sequentially. If the higher ARPU bearing Monthly4G plans take hold en masse this should go up slightly. Churn: Overall and postpaid churn increased for obvious reasons. The postpaid churn went from 2.2% the previous quarter to 2.3%. Closest rival Sprint has turned its churn fortunes around but its highest postpaid churn rate was 2.01%. Verizon Wireless and AT&T are near 1% as a gauge.